The Goods and Services Tax (hereinafter referred to as the ‘‘GST’’) regime was introduced in India in 2017. It aimed at unifying the taxation system in India and eliminating the cascading effect of taxes.
The provisions of GST were drafted in a way that it ensures ease of doing business for the business, as well as no tax evasion. Moreover, Goods and Services Network (hereinafter referred to as “GSTN”) was assigned the main task of establishing interactivity and promoting transparency. Due to technical limitations and other constraints, the goals are not fully achieved. Hence, the provisions are amended through Notifications, Circulars, judicial interpretations etc.
The Judiciary goes a long way in helping with the interpretation of a regime especially in its nascent stages. The GST is a relatively new regime with several provisions being interpreted by the Courts for a better understanding of the tax regime.
The previous blogs discussed the changes brought in the GST law vide the Union Budget 2022-2023 (Finance Act, 2022) and the Recommendations of the GST Council. This blog analyses the landmark judgements delivered by the Supreme Court and the High Courts in the GST law in 2022.
The Recommendations of the GST Council is Not Binding on the Parliament or the State Legislature
The Supreme Court in Union of India and Anr. v. M/s Mohit Minerals Through Director [2022 (5) TMI 968- Supreme Court], held that the recommendations of the GST Council are not binding on the Parliament and the State Legislature. The issue before the Supreme Court pertained to the Notifications issued by the GST Council on the issue of freight being included in import value and the importer simultaneously paying Integrated Goods and Services Tax (hereinafter referred to as “IGST”) for the same freight portion. A separate taxable event was attempted through the impugned delegated legislation which was challenged.
The Supreme Court held that some recommendations of the GST Council are binding on the Union and the State Governments by way of the GST Act, it cannot mean that all the recommendations are binding on the Parliament and the State Legislatures. The recommendations of the GST Council have a persuasive value.
Further, the Court stated that if the intention of the Parliament was to make all recommendations binding, there would have been express provision in the statue.
Moreover, the Court held that the recommendations of the GST Council are binding on the rule making power of the government, but it cannot be made binding on the legislative power of the government. The Court relied on the inclusion of Article 279(1) of the Constitution of India by the Constitution Amendment of 2016 which indicates that the recommendations of the GST Council shall have a persuasive value. Neither does Article 279A begin with a non-obstante clause nor does Article 246A state that it is subject to the provisions of Article 279A. The Parliament and the State legislatures possess simultaneous power to legislate on GST.
The Supreme Court also held that the IGST cannot be levied on the Ocean Freight.
Religious Pilgrimage through Private Tours are not Exempted
The Supreme Court in All India Haj Umrah Tour Organizer Assn. v. Union Of India [2022 SCC OnLine SC 914] dismissed a batch of petitions seeking exemption from the GST for the Haj and Umrah services offered by the private tour operators to the pilgrims travelling to Saudi Arabia. The Court held that the services of religious pilgrimage facilitated by the Central or the State Government, under a bilateral agreement is exempted from the levy of GST. There is no exemption available to a tour operator service by any private individual.
Furthermore, the Court held that the Legislature has wide latitude in the matters of taxation. Although Article 14 of the Constitution of India, prohibits class legislation, it is within the powers of the legislature to categorize goods and services for the purposes of taxation to meet the objectives of the Government. The Legislature intends to differentiate between public and private entities and there is no discrimination between religious pilgrims. All pilgrims who undertake Haj/Umrah pilgrimage or any other religious pilgrimage through private tour operators are treated equally.
Directorate General of GST Intelligence is a Central Excise Officer
The Madras High Court in M/s. Redington (India) Limited v. Principal Additional Director General [WP 18803 of 2021 decided on 17.06.2022], observed that officers of the Directorate General of GST Intelligence are “Central Excise officers” for the purpose of Rule 3 of the Service Tax Rules, 1994. The Court reasoned that the officers are vested with the powers of Central Excise Officers by the Central Board of Excise and Customs (hereinafter referred to as the “CBEC”).
Moreover, Section 2(b) of the Central Excise Act, 1944 is expansive and any person, including any officer of the State Government, who has powers of a Central Excise Officer under the Central Excise Act, is a “Central Excise Officer.”
Further, the Court observed that the “Central Excise Officers” perform tasks under Chapter V of the Finance Act, 1994. It is the Central Excise Officers who can issue Show Cause Notices under Section 73 of the Finance Act, 1994 if an assessee has not paid the tax levied, or is short-levied. The Court observed that it is also the “Central Excise Officer” who can adjudicate such Show Cause Notices.
Physical Verification of Business Premises without prior notice in violation of the Principle of Nature Justice
The Delhi High Court in Curil Tradex Pvt. Ltd. v. The Commissioner [2022 SCC OnLine Del 2791] held that the physical verification of business premises for GST registration, without prior notice is a violation of the principle of natural justice.
The Court observed that the Proper Officer to inspect the Petitioner’s business was present, but in the absence of its Authorized Representative. Therefore, the Petitioner’s registration was cancelled based on the show cause notice.
As per Rule 25 of the Central Goods and Services Rules, 2017, if after the registration is granted, the proper officer is satisfied that physical verification of the place of business of the concerned person is required; it should be carried out in the presence of the said person.
The Court directed the petitioner to file an application for revocation of cancellation within the next fifteen days.
Alcoholic Liquor for Human Consumption cannot be considered to be food or food products
In M/s. Esveeaar Distilleries Private Limited v. Assistant Commissioner (State Tax) [2022 SCC OnLine AP 2530] the issue before the Andhra Pradesh High Court was that of the GST payable on the manufacturing of alcohol for human consumption by way of job work. The Petitioner is a manufacturer of liquor with its distillery in Chittoor District. The Petitioner contended that the GST payable should be 5% (five percent) against the 18% (eighteen percent) that is levied under the CGST and IGST Acts.
The Court observed that alcoholic liquor is not considered food. Therefore, any service by way of job work in relation to the manufacture of alcoholic liquor for human consumption are not eligible for 5 percent GST.
The Court relied on the decision of the Supreme Court in the case of Collector of Central Excise vs. Parle Exports Pvt. Ltd., in which it was held that it will never be the intention of the legislature to exempt expensive items like alcoholic liquor under the category of food and food products, even though the same is for human consumption.
IGST cannot be levied on Ocean Freight
The Gujarat High Court in M/s Louis Dreyfus Company India Private Limited v. Union of India [R/SCA No. 11540 of 2021 decided on 07.07.2022] directed the Central Board of Indirect Taxes and Customs (hereinafter referred to as the “CBIC”) to refund the IGST on ocean freight along with the statutory rate of interest within six weeks.
The Notification No. 8 of 2017 dated 28.6.2017 provided that the IGST at the rate of 5% shall be levied on inter-state supplies of services when the goods are transported in a vessel, etc., with the commencement of the levy of GST.
Another Notification No. 10 of 2017 dated 28.6.2017 was issued notifying that in respect of services supplied by a person located in the non-taxable territory by way of transportation of goods by vessel from a place outside India upto the Custom Clearance Station in India, the entire IGST shall be paid on the reverse charge basis by the importer.
The Notifications were considered to be illegal and in violation of the law by the Supreme Court in Mohit Minerals Pvt. Ltd. v. Union of India (Supra). Since the notifications had already been ruled to be ultra vires, the Court directed the refund of IGST.
CIBC to keep the gateway online for transitional credit for two months
The Supreme Court in Union of India v. Filco Trade Centre Pvt. Ltd. [Special Leave to Appeal (C) No. 32709-32710/2018 decided on 27.07.2022] directed the GSTN to open the GST portal for two months so that taxpayers can claim the transitional credit allowed under the GST law, which could not be availed by the assesses due to technical glitches. The TRAN-1 and TRAN-2 forms were opened for two months, from 01.09.2022 to 31.10.2022.
The State not obligated to provide HSN Code in Tenders
The Supreme Court in Union of India v Bharat Forge Limited [Civil Appeal No of 2022 dated 16.08.2022] held that when the State is issuing a public tender, the GST is to be paid on the transaction, but the State is not under the public duty to indicate HSN Codes in the Public Tender.
The series of judgements delivered by the Supreme Court and the High Courts, remove the difficulties and doubts of interpretation pertaining to the provisions of the GST Act. Moreover, it also encourages a more interpretive process for the GST Regime. The Courts have taken an expansive approach in reading the provisions of the GST.
In several judgments, the Courts have harmoniously read several other provisions along with the GST regime and highlighted the need for correct interpretation of the laws as it affects the ease of doing business in the country.
– Team AMLEGALS assisted by Ms. Anushka Sharma (Intern)
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